Euro rallies as the pollsters get it wrong (again) as the Dutch (possibly) stem the populist tide

One thing we learnt from Brexit and Trump in 2016: corporations and investors would be wise to have a healthy dose of scepticsm when looking at pre-election polling statistics. It’s a lesson which is worth remembering in 2017 given the multitude of elections in Europe, notably France and Germany. Results from the recent Dutch elections seem to suggest pollsters got it wrong again, with right-wing populist Geert Wilders’ party falling far short of some pollsters’ expectations. Even so, Wilders’ populist PVV came in second place with 13% of the vote and will have 20 out of a total of 150 seats in this parliament (interestingly, five more than in 2012 but still five less than in 2010).

So why do polls matter if they aren’t accurate? Well, in the first instance, they matter because elections are market and currency moving events. Even in the case of the Netherlands, Dutch bonds outperformed German bonds the morning after the election whilst French bonds also eased in response. Meanwhile the euro surged 1.2 percent overnight after exit polls were published, rising to a five-week high of $1.0746 the morning after when 95% of votes were counted. So logically, we can also expect further movements after the French and German results – perhaps even starker if the pollsters get either of those ones wrong.

They also matter in the longer term because ultimately policy, including economic, fiscal and financial services regulatory policy, can look very different depending on who wins or loses at the ballot box. France’s EU policy under would-be-President Le Pen would look very different to that of would-be-President Macron or Fillon for example. Whilst there’s clearly some credence in Rutte’s victory rally cry that “the Netherlands had said ‘stop’ to populism”, that doesn’t necessarily mean others, particularly the French, will follow suit. When it comes to Brexit the Dutch rejection of Wilders’ brand of populism will be interpreted by policymakers in Brussels as a victory for pro-EU forces and a unifying factor on the EU27 side ahead of article 50 notification. The next political test for pollsters, markets, investors and politicians (including populists) alike: the French presidential elections (first round 23 April; second round 7 May).

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If 2016 was annus horribilus for the EU, is 2017 looking like it might be any better? The prudent pundit would not touch that question with a barge poll. The saying goes “a week is a long time in politics”. These days a week is an eon.